Insurance Becomes M&A Powerhouse in Asia

A woman walks past a Ping An Insurance building in Shanghai December 6, 2012.

Investors and insurers are swooping in on Asia’s insurance industry for acquisitions, encouraged by a low rate of penetration in the region’s emerging markets at a time when European banks in need of cash are exiting the sector.

Insurance, not long ago a sleepy corner in Asia’s mergers-and-acquisitions industry, became one of the hottest sectors last year. It climbed eight spots from 2009 to become the 10th-busiest sector for deal makers, according to Dealogic.

Asia’s strong economic growth has made insurance a sought after investment, especially in Southeast Asia. Buoyed by a number of billion-dollar-plus deals, the volume of announced M&A deals in Asia rose 24% to $21.85 billion last year, and was 42% higher than in 2009.

Boosting that 2012 figure was HSBC Holdings PLC's announcement in December that Thai conglomerate Charoen Pokphand Group plans to buy the U.K.-based lender’s 15.57% stake in Ping An Insurance (Group) Co. of China. The $9.39 billion bid by the Thai company known for exporting frozen chickens would be the biggest insurance M&A deal in the region for 2012. The deal is in limbo, however. Regulators scrutinizing the transaction may veto it over concerns about how it is being funded, people familiar with the matter said.

The industry’s second-biggest deal in Asia last year was Pacific Century Group Holdings Ltd.’s’ $2.14 billion bid for ING Groep's insurance operations in Thailand and Hong Kong. Under the terms of a Dutch government bailout during the global financial crisis, ING was forced to sell more than half of its Asian operations and at least a quarter of its U.S. insurance business by the end of 2013. Pacific Century Group is likely to have little trouble raising the money. Its owner, Richard Li, is the son of one of Asia’s richest men, Li Ka-shing.

Bankers say Japanese insurers are likely to be more eager investors in Southeast Asia’s insurance sector this year.

Swiss Re estimates that life-insurance premiums in Asia’s emerging markets will grow 9.8% this year. That is almost double its 5.2% estimate for developed Asia—which includes Australia, South Korea and Japan, among others—and more than four times its 2.2% forecast for industrialized countries overall.

One of the most practical ways for an insurer to grow in Asia is to enter into a distribution agreement with a bank, which enables insurers to sell their products via the bank’s branches. However, the popularity of these agreements, known as bancassurance deals, means it is getting more expensive for insurers to forge an alliance with lenders in Asia.

“There is increasing emphasis on bank-based distribution of insurance products across Asia,” said Donald Lacey, who heads Citigroup’s insurance investment-banking practice in Asia. That has led to a “significantly elevated level of competition among insurance companies for deals with banks.”

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Deal Journal is an up-to-the-minute take on the deals and deal makers that shape the landscape of Wall Street, including mergers and acquisitions, capital-raising, private equity and bankruptcy. In short, wherever money changes hands. Deal Journal is updated throughout each trading day with exclusive commentary, analysis, data, news flashes and profiles. The Wall Street Journal’s David Benoit is the lead writer, with contributions from other Journal reporters and editors. Send news items, comments and questions to deals@wsj.com.